New Fund Model in Vietnam May Boost Liquidity

Vietnam’s investment landscape is about to get a facelift that could ultimately boost its private equity industry, as fund management companies seek to establish open–ended funds that will allow domestic investors to participate in trading, increasing liquidity across all asset classes.

One fund management company in Vietnam, which is minority-owned by a private equity firm, is currently drawing up the paperwork to establish an open-ended fund. This structure, more commonplace in developed countries, will allow local investors, who are typically retail, to purchase shares in the fund directly, said a Hanoi-based lawyer who works at an international firm.

Even though such funds would probably be buying into public entities, that would still “bring more liquidity into the market and make assets more attractive…it’s good for PE houses looking to buy or sell,” said the lawyer, who focuses on private equity. “It’s pretty dead at the moment, there aren’t sufficient assets.”

At the moment, many Vietnam-based funds targeting private equity deals are closed-end – as is the case for VinaCapital, which has offices across the country including in Ho Chi Minh City and Hanoi. The firm has a private equity fund of about $780 million, launched in 2003, but as the vehicle’s shares are traded on London’s Alternative Investment Market, local Vietnamese are restricted from trading it.

VinaCapital has no plans to go down the open-ended route though, said Andy Ho, managing director and head of investment at the firm, explaining that many open-ended funds require some exposure to “fairly liquid assets such as listed investments,” and shareholders’ strategy has to be taken into consideration.

He also said that a closed-end fund structure is preferable to a more traditional general partner-limited partner model, especially for funds in emerging markets where there’s a lot more volatility, and it takes longer, for example, for products to come to fruition. In VinaCapital’s case, its private equity vehicle, VinaCapital Vietnam Opportunity Fund, has had its life already extended after reaching the end of its term in 2008, and the firm is about to hold another annual general meeting about extending it for a second time, said Mr. Ho.

VinaCapital generally invests $10 million to $30 million per company, with a three- to five-year holding period, and targets a minimum 30% internal rate of return, said Mr. Ho, who added that capital goes towards companies in sectors such as financial services and consumer goods.

In addition to this, the firm also manages a venture capital fund, totalling less than $50 million, which was raised in 2007 and targets technology and media companies. The venture fund, which invests $1 million to $3 million per deal in companies that are starting to generate revenue, is yet to be fully invested, said Mr. Ho . “There are plenty of start ups, but the key is scalability.”

Write to Sonja Cheung at sonja.cheung @dowjones.com. Follow her on Twitter at @SonjaCheung

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